How does Google's new privacy policy compare?

Some politicians, privacy advocates, and pundits have been stirred into a frenzy in the wake of Google's newly announced overarching privacy policy. Critics have expressed everything from concern to outrage, suggesting Google will suddenly begin tracking users' each and every move around the Internet and will use that precious data in frightening and unspeakable ways.

The fact of the matter is, Google doesn't appear to be doing anything worse than what companies likeApple, Microsoft, Yahoo, and Facebook have doing for years. It's just that Google has taken arguably unprecedented pains to alert the public of imminent changes to its privacy policies and has made the new policy approachable enough for the average person to read it. (Or skim it. Or skim what someone else wrote about it after skimming it.)
Google already knows about you
In a nutshell, Google is effectively replacing the 60 or so separate privacy policies the company currently has for its wealth of services. The new policy (along with a blog post and video on the subject from Google) reiterates what you already should have realized: Google collects data about you as you are logged into your Google account and using a Google service (e.g. Search, YouTube, Gmail, Google+).
If you were unaware that Google or any other company was collecting data about you used one of their online services, you must be new to the Internet or (with all due respect) oblivious. Nothing's changed here: Google has long collected your data as you've searched and Gmailed, and it has used that data for such things as targeted ads. The type of data the company is collecting is not changing.
What's new is that the policy states clearly that the aforementioned data can be shared among the other Google services that you use while logged into your Google account. It's similar to, say, how Facebook shares varying amounts of data about you among its services -- as well as with the third-party apps on the site.

Google is spinning it as an opportunity for a more personalized, integrated Google experience. Per the company's official blog, "We can provide reminders that you're going to be late for a meeting based on your location, your calendar, and an understanding of what the traffic is like that day. Or ensure that our spelling suggestions, even for your friends' names, are accurate because you've typed them before."